The agricultural economy faces some headwinds heading further into 2024. Roland Fumasi, Head of RaboResearch Food and Agribusiness – North America, says things are taking a step back after a few productive years.
Fumasi says, “When you look at the last two crop years, growers had some record pricing, really, really strong. It’s the positive aspect of it. Balance sheets are in pretty good shape, which is going to allow, on average, out there to withstand some of the pain that we’re seeing. Now you look at corn and soybean markets very, very depressed, and even more depressed after last week’s WASDE, so there’s going to be a little giveback of that cash build-up over the next two to three years, but people should be able to withstand it after two very successful years.”
He says most farmers have some liquidity left after multiple years of high prices. Fumasi says, “As of today, I would say yes, even when you look back at the beginning of 2023 when we were in that previous crop year, prices stayed pretty strong through the first half of last year. So, it’s just in the second half of 2023, and currently where we’ve seen the markets get depressed. As of today, the average producer out there is in pretty good shape in terms of their balance sheet. Unfortunately, there’s going to be some time here where this pain is probably gonna last a bit.”
Farmers are holding a lot of commodities on-farm, which means they’re going to have to get sold some time, so prices will likely drop.
He says, “I think about on-farm stocks being at record highs. At some point here in the coming months, we’ve got to make room for the crop late this year. We’ve got to make room for the next crop, so that doesn’t scream bullishness for the markets when you know they’re sitting on those on-farm stocks that are gonna have to come out.”
Other countries also have a lot of stocks on hand, which isn’t promising for overseas demand according to Fumasi. He says, “It’s a supply-side issue when you think about the consecutive record years that Brazil had. Keep in mind – this doesn’t get talked about a lot- China had a record corn crop. You think about that, and you think about the U.S. crop being a lot stronger last year than what a lot of people were originally anticipating. Yields just got revised upward, which didn’t surprise us. We were calling for corn yields to be higher, so we’ve got a lot of product out there.”
